Retail, BPO to continue driving PHL property market

Sustained demand from retailers and business process outsourcing (BPO) locators will continue driving the property sector, while the industrial segment awaits infrastructure developments, according to consultancy KMC Savills, Inc.

Retail will outgrow other segments of the real estate industry, expanding 7.5% to 10% this year, KMC Savills Head of Research Antton Nordberg told reporters during an Aug. 24 briefing in Makati City.

“It’ll actually be the retail that’s the fastest growing purely because that private consumption in the country is extremely high… there’s a lot of retailers who would like to enter the market,” Mr. Nordberg said.

Also, spaces for BPO locators will continue to expand, outperforming the industrial segment at least for another 10 years, according to KMC Savills.

“The next 10 years is definitely still the BPO story, which is leading the way for commercial office real estate,” KMC Savills Vice-President for Marketing and Landlord Services Yves Luethi said.

Mr. Nordberg noted that real estate companies have started land-banking for industrial developments although such plans remain dependent on the construction of seaports, highways, airports and other infrastructures.

“In Singapore, there has been a successful industrial [sector] because of tax incentives. I think there’s also structural political initiatives which will have to come first,” Mr. Luethi added.

The property consultant anticipates a sustained inflow of foreign direct investments in the manufacturing sector, which received about 60% of such funds that entered the Philippines over the past five years.

“As soon as the infrastructure [development] will start, the industrial sector will overtake the retail segment,” Mr. Nordberg said, citing the former Clark Air Base in Pampanga and other areas near seaports as ideal industrial hubs.

“In terms of manufacturing of goods in the Philippines, you also need to think of how you will get them out of the global market. That’s why it (industrial real estate segment) needs infrastructure,” Mr. Luethi said.

The government of President Rodrigo R. Duterte has vowed to accelerate spending on infrastructure, allocating an amount equivalent to as much as 7% of the country’s gross domestic product.

For next year alone, the executive branch earmarked P900 billion for public infrastructure projects from the proposed P3.35-trillion expenditure program. The budget is currently in Congress for scrutiny and approval.

In the meantime, the demand for BPO offices will continue to support the real estate sector and the Philippine economy in general, Mr. Nordberg noted.

“The new administration shouldn’t be worried about the industrial sector. They really should do everything they can for the BPO sector because that’s where we have higher margins, which can grow faster in the next 10 years,” Mr. Nordberg said.

Aside from the government’s thrust to improve business climate, the property sector in the Philippines is seen benefitting from the economic slowdown and uncertainty prevailing across the world.

Companies have started looking into transferring non-essential operations to emerging markets to slash costs, Mr. Nordberg said, citing the Philippines as leading option for its strategic location, potential market and English-speaking population.